Small Cap Value Report (8 Nov 2016) - FEVR, RCN, KWS, ACRL, PUB

8th Nov '16 by Paul Scott

37 comments 20943 reads

Good morning!

I really enjoyed the discussion in the comments section of yesterday's report, so thank you to everyone who contributed. I suppose there was a certain irony in me bemoaning the post-fact nature of a lot of popular discussion. Only to illustrate my point with something (Brexit polls) where my own recollection wasn't entirely accurate!

Still, that did illustrate the proper process - someone points out that you may not be entirely accurate in what you're saying. You check the evidence they provide. If they're right, then you revise your opinion in light of the fresh information provided. That's how things should work, but sadly often does not - especially on social media - because ego and stubbornness get in the way.

I am becoming increasingly convinced that the world was a much better place before social media was invented. Hopefully there will be a backlash against Facebook in due course. Mind you, it is very good at catching criminals & fraudsters apparently. I've just been watching a TV programme about how insurance fraudsters, and other bad people often give themselves away through their social media postings.

Fevertree Drinks (LON:FEVR)

Share price: 1100p
No. shares: 115.2m
Market cap: £1,267.2m

Trading update - not a small cap any more, but it's topical & interesting, so I have some comments. This maker of premium fizzy drinks is worth a mention, as it nicely illustrates the point of how "expensive" shares can keep going up to seemingly stratospheric levels.

The key here is repeated improvements to expected performance. The latest update, out yesterday said;

The Board is pleased to announce that Fever-Tree has continued to perform strongly in the second half of the year.

The performance in the UK, the Group's largest market, has been particularly strong as new distribution gains have combined with a continued rate of sales growth.

Given the strong sales in the period to date, the Board anticipates that the results for the full year ending 31 December 2016 will be materially ahead of current market expectations.

That's pretty remarkable stuff - at this late point in the year, I wouldn't normally expect any "materially ahead" statements - as most companies will probably know how this year is likely to play out. That's for companies with a 31 Dec year end, of course. So Fevertree must really be trading…

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GBGMC0

8th Nov '16

Paul

You omitted to say whether you think FeverTree is a buy/sell/hold at this price.

JohnEustace

Today's Edison note on the KWS upgrade illustrates your point very well.

" Full-year results are now expected to be materially ahead of consensus and we upgrade our FY16e EPS by 13%. Erring on the side of caution, we have not changed our FY17 estimates significantly. Nevertheless, we believe the company does have a platform to sustain double-digit earnings growth, and hence medium-/long-term prospects for further share appreciation remain good."

For Paul and others wondering what Keywords Studios (LON:KWS) does, this video of their presentation at ShareSoc in Richmond in July is what led me to start buying their shares.
http://www.piworld.co.uk/company-video-2016/2016/7/15/keywords-studios-kws-sharesoc-richmond-july-2016

Paul Scott

Hi GBGMC0,

I don't give Buy/Hold/Sell ratings or advice. I just don't agree with the whole principle of commentators telling readers what to do with their own money, that seems completely wrong to me.

The onus here is for everyone to do their own research, and make up their own minds.

Regards, Paul.

Modform

Paul, FEVR generates almost £300,000 profit per employee, that's remarkable and explains how niche it is.
BVXP comes close to it and I hold both

Hi Modform,

Yes, fair point (post #22).

Although I think what matters more, is how sustainable profitability is?

So the big question with Fevertree Drinks (LON:FEVR) is whether it's built a permanent place in the tonic water market, or whether the goliath incumbents may try to snuff it out with competing products?

To my mind, it's just too faddish to justify taking a punt on.

Regards, Paul.

FREng

9th Nov '16

The Trump effect.

I looked through the top fallers today (there's no major impact of the Trump win yet, it seems) and came across Alumasc (LON:ALU) which has fallen 5% or so today. It looks interesting - does anyone here have any knowledge of ALU?

Paul

Thanks for the link to your fantasy portfolio, Beam Me Up Scotty. Very interesting - and very successful!

Could you explain why you sold Avesco (LON:AVS) on 4 October, just days after a positive SCVR write up that said "I'm hoping for upside to 400-500p here, in the long run, and it remains one of my core personal holdings." ?

davidallen77

Paul can you looks at sbry today as revenue is 12.6bn v 12.4bn in 2015. Point being this year revenue includes argos sales of 1.4bn ish. So whats going on?

MichaelFBS

Hi Paul

I dont think that the goliath incumbents will be able to snuff it out in the same way that VW would not be able to snuff out say Ferrari by building a car that costs £250k and goes from 0 to 60 in 3 seconds.

Enough of the population like premium products (I'll have a gin and Fevertree please!) that there is room for Fevertree Drinks (LON:FEVR) AND Schweppes. I would have thought that with such a small turnover (£90m) there is room for expansion without making any real dent in the big boys sales/profits.

I still have high hopes for this stock and will certainly top up on either pull back and/or when the dust settles over the US election.

Thanks for the link to the Fantasy portfolio BTW

roque22x

Hi paul,

I think there is one significant fundamental you have missed in your report of Accrol. That is the large purchase of shares by the ceo of the company on the 29th of September. He bought £132,000 worth of shares at a price of 132p a share. A significant amount as he did not hold any prior to this.

Beginner

Alumasc (LON:ALU) shows excellent figures, but has a massive pension defecit. (PER 8.4; PEG 0.6; Yield 3.5%). The company recently shed some less profitable subsidiaries, and the last update was pretty positive. I hold and am happy to do so. The 24-Hour Charty People can see this falling to 127. If it does I would like some more. (Today's move is on small volume, as are most shifts here).

Thanks - I hadn't spotted the pension deficit.

Paul

What I mean is usually you give a My Opinion section where you say if it's expensive or not. You have omitted this with your FeverTree analysis, but have included it with your other reviews.

catalogue

10th Nov '16

Your piece on Accrol is gold dust to the less experienced. IPOs are attractive and can be an opportunity for susbstantial gains, from which I have benefitted over the years. To be alerted to the, let's be kind, strategies "cashing in chips", MIP schemes all adds to gauging the worth of a float. Who knows it might be a great stock. It seems to make absolute sense to produce voluminous low value products close to the consumer rather than shipping fresh air all the way from a low cost Asian producer, which would have hooked me, now I will think again, so might those seeking to catch unsuspecting investors. We have been warned.

11th Nov '16

Hi FREng,

You asked;

Could you explain why you sold Avesco (LON:AVS) on 4 October, just days after a positive SCVR write up that said "I'm hoping for upside to 400-500p here, in the long run, and it remains one of my core personal holdings." ?

Sure. The reason is simple. I DIDN'T sell AVS. I top-sliced it, as I almost always do with successful positions, to rebalance the position size in my portfolio.

Top-slicing has been my policy for many years - as readers here will know.

The facts are that in my fantasy portfolio I originally bought AVS at 125p, and AFTER recent top slice am up 131% on the balance.

It remains one of my largest holdings, at 174k/1846k = 9.4% in the fantasy portfolio, exactly in line with my commentary in the SCVRs.

Hope that clarifies.

I look forward to your overdue apology.

To be blunt, if you're going to be a PITA and make unfounded implications of wrongdoing, etc, then I won't bother to carry on with the fantasy portfolio. I didn't want to do it in the first place, and rarely remember to update it.

Ed coaxed me into doing it, as he said in early 2015 that he's a data guy, and wants proof that my approach works. So I reluctantly agreed.

It's had a very good run recently, and that may not continue. As with everything I do, if it becomes a chore, and if people get nasty over it, then it goes in the dustbin. I'm perfectly happy to have a quiet life, and not spend every day trying to help people interpret RNSs and results statements.

Paul

Hi GMGMC0,

Ah I see!

What I mean is usually you give a My Opinion section where you say if it's expensive or not. You have omitted this with your FeverTree analysis, but have included it with your other reviews.

Fevertree Drinks (LON:FEVR) market cap is well over £1bn, so I only mentioned it the other day as a topical share to illustrate an interesting point - how growth companies grow into the valuation, and what we can learn from that.

I don't have any particularly strong views on FEVR - although it is noticeable how growth investors who saw the potential have made money, whilst those of us who focused on value measures, got it wrong (so far, anyway). That was the main thrust of the article.

Regards, Paul.

Hi catalogue,

Thanks for your comments.

I'm not saying whether Accrol Group (LON:ACRL) is necessarily good or bad.
I just see my job as being to rummage through the admission document & RNSs, and report back to you. Then you can make up your own mind.

Also, secretly, I quite like reading admission documents! Which makes me very sad LOL!!!!

Regards, Paul. :-D

Paul,

It was a sincere thanks for the link to the fantasy portfolio (which I hadn't found before) and a sincere (and, I thought, polite) request for some insight into what motivated your well-timed (partial) sale. I certainly had no intention of causing offence and I apologise, grovellingly, for inadvertently doing so.

To help me in future, could you say whether you really don't want questions explain how I could have phrased this question so that it didn't cause offence?

jonthetourist

Hi FREng

I will have a go at answering your question, since Paul has plenty of work to do round here, and I generally take a free ride.

You wrote:
Could you explain why you sold Avesco (LON:AVS) on 4 October, just days after a positive SCVR write up that said "I'm hoping for upside to 400-500p here, in the long run, and it remains one of my core personal holdings." ?

That sounds somewhat accusatory to me too. Especially because Paul has been accused of various things over the years and is actually as honest a man as ever went near the stock market.

How about: "It would be useful for me to know the rationale behind sales of stocks, like Avesco for instance, where you have set out a positive case for further upside."

ATB

Jon

Small Cap Value Report (8 Nov 2016) - FEVR, RCN, KWS, ACRL, PUB

Fevertree Drinks (LON:FEVR)

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Paul Scott

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